Here is where things start getting tricky.
For the better part of the last decade, the U.S. economy has been on an expansion back from the Great Recession. Various measures of recovery show the economy having regained its footing and moving forward. That’s all well and good, but it puts us in a rather odd spot today.
The Coming Recession
Economies contract and expand.
End of discussion.
There is no new normal, not this time, not the last time, not the time before that.
Every economy eventually runs out of steam and pulls back. Sometimes it’s a brutal collapse. Sometimes, it’s a more gentle, pull back, but there will be a recession.
On a strict time-basis, this economy’s expansion is now very old. The official start of this economic expansion is June 2009. That makes it the second-longest expansion in U.S. history. On the one hand, YEA!, on the other hand, it’s like your dog living to be 17-years old. It’s great, but you know there aren’t many years left. If this expansion makes it to mid-2019, it would be the longest in history.
Before you break out the champagne, you probably want to know that the longest expansion in U.S. history was the one that ended with the Internet bubble bursting and decimating the economy.
One of the very different things about this expansion is that it has been very slow, especially in those beginning years, unlike the race ahead “irrational exuberance” of the 1991-2001 expansion. One of the things that is very much alike about this expansion is that very generous Federal Reserve monetary policy has been one of the driving engines of this economy. And, thank goodness. Without it, a politics-before-country Congress would have surely locked the economy into another decade of recession, just so that they could blame each other for the pain.
What To Do About the Coming Recession
So, what do we do now?
Knowing history and the fact that another recession is coming, whether it happens next year, or the one after that, (or the one after that?), is all well and good, but what should someone do?
Believe it or not, trying to time the market by bailing out before a fall is NOT one of the things to do. Recall that most markets make quite a bit of up time even after they have officially run out of steam. Missing out on those end of growth rallies can be every bit as costly as the eventual downturn. Not to mention, knowing when to get back in is almost impossible.
Instead, it’s time to check your portfolio balance. A long-term investment portfolio should be balanced based upon your risk tolerance and long-term goals. Now is a good time to check and see if any one group of investments is over-weighted, or under-weighted and rebalance. Notice this is NOT the same thing as selling all of the stocks you thing are going to not do well during a recession. Instead, it’s about getting the balance right.
If you are contributing to an investment, whether it’s a 401k plan, a 529 plan, or an IRA, keep doing it. As always, dollar-cost averaging is your friend here. Your dollars now are buying fewer and fewer shares as prices rise. When the decline, the reverse will be true and you’ll be buying low.
Do NOT try and time the market, even though we can see the recession coming.
Review your plan, your goals, and your investment allocations.
Now IS the time to plan your landing. If you are in a long-term job and you feel good about where you are, stay there. Dig in and make yourself useful. If layoffs come, you want to be the last out the door.
If you’ve been thinking about making a move job-wise, the time is NOW. Right now, there are more jobs than there are workers. It’s time to find your five-year home. If the recession comes, finding a new job a thousand times harder than holding onto one. Wherever you are when things go bust is where you will be for the next few years.
Along those lines, now is the time to build your emergency savings funds. No matter how good things seem now, they can change quickly if the economy goes pop. A few months of savings to give your breathing space is invaluable if things go sideways.
Also, get your side hustle on. Build contacts and connections. If you need help later, you already want willing people on your side.
If you need to refinance your house, your car, or anything else, do it NOW.
Lenders get skittish when times are tough. Right now, they are all looking at growth. Get that lower interest rate or lower payment locked in now.
Finally, delay big purchases that you don’t need right now. A new car sounds great while times are roaring, but those payments can be an anchor around your neck in a few years. If you NEED a new car, get it soon. Buy used, and buy smart. Buy IN YOUR BUDGET. An 84-month loan is proof the car is NOT in your budget and that you are overbuying. Remember, you’ll lose 15% to 20% of the value the day you drive a new car off the lot. You won’t be able to sell it for years, especially if you have a really long term loan like that.
Starting a business?
That really depends on the type of business and the position you are in. Do you already have clients lined up? Can you get profitable fast… like NOW? If so, you can still make the jump. If it’s going to take you a year or two to build up, you might need to double that if the recession hits. Can you make it?
Be sure you aren’t getting in over your head and that you have plenty of outs. A low startup cost, low-overhead business is the way to go before the recession hits.
Above all, do what the banks do. Give yourself a stress test.
What are the odds that you would lose your job (did you lose it last time?)? What would happen to you if that happened? Is there anything you can do to help?
How about your loans and payments and needs? Where are you? Can you get your NEEDS now before time get tough? Re-prioritize your spending to needs first so that you have them if things get rougher.
Batten down the hatches, but don’t stop living your life. The recession might be short and light. Living in fear is not the answer. Making some smart moves now, is.